My lender is quoting me 6.75% interest rate?!

Honolulu, Hawaii
First-Time Home Buyer
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My lender is quoting me 6.75% interest rate?!

Kessy Similien
Member since 2021 · 12 posts · 2 votes

Hi, 

I entered escrow 30 days ago on a leasehold + fee available property. My lender said he could not lock down rates until he received the fee contract from the seller. This took almost 3 weeks to receive and in that time the rates shot up. Now he's saying the rate at 0pts is 6.75%.

When I google average rates im seeing 5.5% around the nation so im very confused why mine is so much higher when my score isn't that bad. 

He also offered me 5.99% for 1pt @ 4.5k or 5.45% for 2pts at 9k. I would most likely refinance this property if rates ever came down so i'm hesitant on buying points. 


This is a 2bd 1ba in waikiki recently renovated. 


We've already filed for an extension with the seller, I doubt we'll get another one so I don't have time to find another lender. 

Should I just bite the bullet and lock in 6.75? 

Should I buy the points? 

Or just bail and wait for the markets to cool over the years?

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Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
4y

Is it a condo? Condos have higher rates than single families. Whats your credit score and DTI?

The average 30 year rate per the weekly Freddie Mac Survey is 5.7% while paying 1 point currently. No points, and a condo, and if you are not in the top tier of borrower could easily get you to the rate he is quoting you. 

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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    4y

    Is it a condo? Condos have higher rates than single families. Whats your credit score and DTI?

    The average 30 year rate per the weekly Freddie Mac Survey is 5.7% while paying 1 point currently. No points, and a condo, and if you are not in the top tier of borrower could easily get you to the rate he is quoting you. 

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  • Kessy Similien
    OP
    Member since 2021 · 12 posts · 2 votes
    4y

    Ah I can't edit my post I should have put my score there. It's around 718 last I checked. 

    Yea it's a condo. 

    Do you think buying points might make sense here? 

    0Reply
  • Curtis DenlingerPro Member
    Member since 2021 · 9 posts · 13 votes
    4y

    This really depends on your feel for the market, also maybe your realtors feel for the market, and what your plans are for it. 

    If the area is going to remain a popular tourist area and desirable to the people who live there, the price will probably go up and you can refinance and take some money out to get another property. So if that’s the case, who cares if over a couples years you paid $1,000 more in interest because of the higher rate if you’ll own this property and be able to cash out refinance and pull tens of thousands out of the property?

    Also, assuming you are going to rent it out, maybe cashflow will be tight in the first year, but the cashflow will grow as you increase your rent. 

    I had breakfast with a couple gentlemen the other month and they said they could remember when their interest was in the teens. So interest in the 6 range isn’t that bad. Like they always say, it’s time in the market, not timing the market that counts. 

    4Reply
  • Raymond J. RodriguesBusiness Member
    Lender · Miami, FL · Member since 2017 · 1k+ posts · 797 votes
    4y

    @Kessy Similien if you’re buying this as a second home or investment property, based on your credit score, that interest rate is the norm. Rates in the mid 5’s that you’re seeing without points is for primary residences. Let me know if you have any questions. 

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  • Galen Ikonomov
    Member since 2021 · 256 posts · 213 votes
    4y

    Kessy,

    You have not mentioned if this is a Primary, Second or Investment property. Primary and Secondary homes have similar interest rates. Investment properties typically have about 1 point ( 1% ) higher interest rate than the first two. Now, this is regarding a Single Family House.

    Condos on the other side adds more risk to the lenders and they typically charge more in interest rate to mitigate any risk.

    Either way, 718 Credit score is not the best credit score ( 740+ is where you want to be in order to tap into the best financing )

    Also, the interest rate you see online most of the times are based on 800+ Credit Scores, Ultra low LTV and DTI. The lenders are putting these ads to have you make a phone call to them so they can "sell" you.

    Another point here is that a lot of the lenders and brokerage companies will have a higher cost in a form of "junk fees" and basis points. 

    My recommendation is since you have extended with the seller, you still have an opportunity for a due diligence period ( calling a couple of lenders to ask for quotes ). Do not pick the LOWEST possible offer, because that means below average service and you might pay later on for that choice in form of a extension fees. Once you find a Lender that you like and lets say it is not the ONE you have currently work with, provide all the documentation right away ( same day or within hours ) so they can close your loan quickly.

     Hopefully that helps a little bit, Good luck! 

    2Reply
  • Kessy Similien
    OP
    Member since 2021 · 12 posts · 2 votes
    4y

    Hi,

    Thanks for the responses, sorry I didn't include all this information right away. This is a first time home (condo) purchase in Hawaii as a Primary Residence. I Was planning on putting down 10% and they are quoting me $9K for closing costs.

    0Reply
  • Raymond J. RodriguesBusiness Member
    Lender · Miami, FL · Member since 2017 · 1k+ posts · 797 votes
    4y

    @Kessy Similien that honestly does seem quite high for a primary residence. 

    @Galen Ikonomov, primary residences and second homes used to have similar rates. Conventional loan overseers instated loan level price adjustments to make them comparable to investment properties in our current times. 

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  • Steven Foster Wilson
    Rental Property Investor · Columbus, OH · Member since 2017 · 3k+ posts · 3k+ votes
    4y
    Quote from @Russell Brazil:

    Is it a condo? Condos have higher rates than single families. Whats your credit score and DTI?

    The average 30 year rate per the weekly Freddie Mac Survey is 5.7% while paying 1 point currently. No points, and a condo, and if you are not in the top tier of borrower could easily get you to the rate he is quoting you. 


     I have even seen local lenders match pricing from months ago (those keeping the loan on their balance sheets)

    0Reply
  • Kessy Similien
    OP
    Member since 2021 · 12 posts · 2 votes
    4y
    Quote from @Raymond J. Rodrigues:

    @Kessy Similien that honestly does seem quite high for a primary residence. 

    Yes! That's what I keep telling my lender but he's acting like my 718 score is the reason as if it's completely horrible and causing this massive rate when average is 5.5 at the moment. I guess my biggest concern is whether im willing to change lenders last minute, risk the buyer pulling out or refusing another escrow extension and losing the property, just so I can save ~1% on interest rate. 

    I scared im falling into a pennywise pound foolish senario. But at the same time with the risk of a recession and the current state of the market, it might be a blessing in disguise. 

    1Reply
  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    4y

    Forget interest rates. The monthly payment is what counts...can you afford it or not? Does it make you feel ok or horrible? The difference that 1% makes is negligible IMHO.....

    5Reply
  • Kessy Similien
    OP
    Member since 2021 · 12 posts · 2 votes
    4y

    The monthly payment is $4000. I would probably need a roommate but per month I currently make 9k. So it's about 45% my net income. 

    0Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    4y

    I am impressed your lender willing to give you money for a LEASEHOLD condo. That was a big no no for most bank as fm would not finance it.

    6.75% is extremely cheap for this kind of pretty. You are blessed someone still willing to lend you money for leasehold lol

    1Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    4y
    Quote from @Raymond J. Rodrigues:

    @Kessy Similien that honestly does seem quite high for a primary residence. 

    @Galen Ikonomov, primary residences and second homes used to have similar rates. Conventional loan overseers instated loan level price adjustments to make them comparable to investment properties in our current times. 


     The problem is, this type of loan can't be mortgaged to FM hence even with low-interest rate environment, there're 1-2% spread.

    1Reply
  • Loren Clive
    Residential Real Estate Broker · Paia, HI · Member since 2016 · 479 posts · 311 votes
    4y

    if you can put 30% down, I know where you can get 4.125%

    but rate sounds normal for Hawaii, particularly if the condo is not conforming

    1Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    4y

    If I can make a guess, your lender is either BOH or a local CU like FHCU. If you bring this deal to mainland bank they will not even answer your call :) almost nobody is willing to lend for leasehold as it's a depreciable asset (almost similar to MH), let alone if it's a non-warrantable leasehold condo (even more if it has no kitchen) and you're still able to use DTI method.

    The 5.5% is Freddie Mac mortgage rate. In my eyes you get a deal here. If it's DSCR route you may face 8-9% rate and be rejected right away.

    0Reply
  • Jonathan Taylor
    Lender · Los Angeles, CA · Member since 2017 · 916 posts · 647 votes
    4y

    @Kessy Similien please clarify if this is a full document investor loan or a DSCR based loan. Googling 'average rates' is like googling 'what car people drive most'. It is not accurate to your situation as the rates the come up are for FULL DOC primary residences. Rates are higher for investment properties and your situation is specific. I have closed DSCR loans from 6.5-8.25% since that is market rate for this asset class. Rate is relative to risk and isn't a one size fits all number.

    1Reply
  • Ravi P.
    Investor · Schaumburg, IL · Member since 2015 · 219 posts · 104 votes
    4y

    @Kessy Similien

    Just for reference, I was just quoted 7% for a 215K cash-out refi with a 75% LTV. A credit score in the high 700's. The lender and I both thought it was high, considering the rate for a Primary residence would be 5.375%.

    1Reply
  • Kessy Similien
    OP
    Member since 2021 · 12 posts · 2 votes
    4y

    Hi everyone, 

    This deal in including the fee contract. We're essentially buying the fee with the condo turning it into fee simple. Im not sure if that changes anything just want to make that clear. 

    1Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    4y
    Quote from @Kessy Similien:

    Hi everyone, 

    This deal in including the fee contract. We're essentially buying the fee with the condo turning it into fee simple. Im not sure if that changes anything just want to make that clear. 


     wow that's explain everything. so it's fee simple then not leasehold. That's why I surprised that there's sane bank outthere willing to lend for leasehold.

    Next question is: is this non-warrantable condo or warrantable ?
    is the condo has front desk unit, if yes then it's.

    Regardless, still a good deal.

    0Reply
  • Wale LawalBusiness Member
    Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
    4y

    @Kessy Similien

    I think you should check with multiple lenders if you think your credit score is not bad and still you have been offered a higher interest rate.

    Also remember you can always refinance in future and get a better interest rate.

    All the best!

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  • Tyler LingleBusiness Member
    Real Estate Consultant · Indianapolis, IN · Member since 2021 · 440 posts · 292 votes
    4y

    Waiting for the market to "cool off" in Waikiki is a very very risky move. Especially in a super desirable area that has limited inventory due to geographic constraints. My suggestion is to get more quotes from different lenders and then just bite the bullet. I've seen drastically different interest rates from different lenders, just remember service can also be drastically different... As you mentioned, you can always refinance. 

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  • Kevin Hill
    Real Estate Agent · Hackensack, NJ · Member since 2014 · 321 posts · 412 votes
    4y

    It's possible. I just spoke to a loan officer at Guaranteed Rate a few days ago. He said he had a client with a good credit, 20% down deposit, conventional purchase of a single family home and the best rate he could get them was 6.5%. Rates are way up, that's the currently market conditions we are dealing with. Takes away a lot of buying power.

    0Reply
  • Harish V.
    Investor · Fremont, CA · Member since 2015 · 211 posts · 125 votes
    4y
    Quote from @Kessy Similien:

    Ah I can't edit my post I should have put my score there. It's around 718 last I checked. 

    Yea it's a condo. 

    Do you think buying points might make sense here? 


    I never buy points. Takes time to recover. I would much rather take higher rate and take credit. Make sure there is no refinance restriction for 6 months.

    0Reply
  • Dave Skow
    Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
    4y

    @Kessy Similien  1) condo  pricing is hgher than  reg  home  pricing   2)  depending on your loan to value - pricing will be higher for  higher ltvs   3)  is property to be  your home or an investment ?  pricing hgher for  investment  property  4) is this a  condo tel ?  if so  - this could be another reason pricing is high 

    0Reply
  • Matthew CrivelliBusiness Member
    Lender · MA · Member since 2021 · 1k+ posts · 1k+ votes
    4y

    I hate having those conversations with my borrowers. I have gotten much better at preparing them going into the process. A good lender will explain to you that without a rate lock you should expect the numbers to change, in this climate drastically. @Kessy Similien What type of prepayment are you looking at? You can always refinance down the road when credit markets start to settle down.    

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